The Government has released details of its bank levy, which is expected to raise £2.5bn annually by 2012-13.
The tax will be introduced in January 2011 and will apply to UK banks and the UK operations of banks domiciled abroad.
It will force banks to contribute to the Government’s package of tax rises and spending cuts while encouraging them to take fewer risks. The rate will be finalised towards the end of the year and will be levied based on the total size of banks’ balance sheets.
Treasury financial secretary Mark Hoban says the Government has consulted on the design of the scheme so it achieves two objectives. These are that banks make a fair contribution in respect of the risks they pose to the UK financial system and the final scheme incentivises banks to make greater use of more stable financial sources, such as long-term debt and equity.
The levy was announced in the June Budget and confirmed in last week’s comprehensive spending review.
The British Bankers’ Association says the banks are committed to playing their part in restoring the UK economy after paying more than £26bn in taxes last year.
But the BBA adds: “The Treasury’s statement is largely silent on how this levy would interact with taxation in other countries. Until this is clearer, some banks could be taxed multiple times by multiple jurisdictions on the same activities.”